Disposal of goods and property

Public sector agencies frequently need to dispose of depreciated, redundant or excess goods, property and other stock. Examples include land, housing, buildings, vehicles, communication devices, machinery and scrap metal. These assets are public resources and, even if redundant or depreciated, usually still have monetary value for the agency. In some cases, income from disposal can be significant. Disposing of goods consequently requires careful planning and needs to be conducted in a way that obtains value for money for the agency but reduces opportunities for corruption.

Disposal of publicly owned goods and property by government agencies is subject to requirements imposed by the NSW Government under the NSW Procurement Policy Framework (2015). In general, Procurement Board directions and government policies that apply to procurement also apply to the disposal of goods that are no longer required or serviceable.[1] Separate policies and procedures exist for the disposal of significant items such as motor vehicles and land.

Local councils are bound by s 55 and s 716 of the Local Government Act 1993, and Part 7 of the Local Government (General) Regulation 2005.

Corruption in disposal of a council motor vehicle

The ICAC investigated allegations that the general manager of a local council had, amongst other things, abused his entitlement to a council-funded car for personal use by selling it without first purchasing it as required under his contract. The ICAC further alleged that the general manager provided false or misleading material to the council concerning the sale.

In August 2005, the council’s general manager had ordered a new car for his personal use as part of his employment contract. The total cost of the vehicle at the time was $42,331, of which there were $7,554.90 worth of extras. A little over two years later, in November 2007, after making a request, the council’s chief financial officer told the general manager that the vehicle was worth $19,945.

The ICAC investigation found that the general manager made arrangements in November 2007 to privately sell the vehicle for $26,000. The general manager kept a $500 holding deposit paid by the purchaser and directed the purchaser to write two cheques; one for $19,945 to be made out to the council, and another for $5,555 to be made out to the general manager. The second cheque was banked in the general manager’s private bank account.

The ICAC found that the general manager was not entitled to any part of the sale price for the vehicle unless he had first purchased it and that, despite making false statements to the contrary, he had not purchased the vehicle at all. In addition to the $6,055, the ICAC identified the corrupt benefit to the general manager involved avoiding the risks and inconvenience of following the proper procedure for disposing of this vehicle.

Common corruption risks related to disposal of goods and property by a public official include:

deliberately under-valuing public assets scheduled for disposal, with the aim of personally purchasing the items

stealing, or otherwise misappropriating, surplus goods

misappropriating the proceeds of asset sales

providing confidential information about tender prices prior to the completion of the process.

Developing a strategy

Disposal is a high risk activity and should be included in internal audit and risk management programs. The disposal of goods and property can generate significant income, which requires some thought and planning.

A written policy and procedures for disposal of goods and property helps ensure consistency in applying these measures. Key features of any policy should include:

compliance with legislation and any relevant NSW Government policies that guide the disposal of goods and property

procedures that clearly map out each stage in the process

allocating roles, responsibilities and delegations.

Best practice involves the disposal of goods and property being seen as part of the procurement process. This is because efficient and effective procurement processes involve preventing the unnecessary accumulation of goods and stock that are surplus to requirements and require.[2] In creating a sound process for disposal, consideration should be given to adopting following the complementary corruption controls:

create and maintain a register of all the assets held by the agency

conduct regular audits of the register to ensure no items have been disposed of improperly

adopt an asset maintenance system that flags when goods become surplus or unwanted (for example, because of average length of use) and their expected monetary value at that point

have agreements with suppliers that unused goods surplus to requirements can be returned

segregate duties in the decision-making process for disposing of goods

obtain external valuation of resources prior to disposal, and keep these records on file so they can be audited

keep details concerning the date of purchase of resources, length and condition of warranty, maintenance and repairs undertaken, and other related information for consideration in the valuation and disposal of goods

impose maximum limits on inventory, such as of machinery, goods and other construction consumables, to prevent the accumulation of surplus requiring disposal

conduct and record regular inventories of goods and stock

to prevent unwanted goods from “disappearing” prior to disposal, store goods securely and use an asset control system to record their value and location.

Finally, it is worth remembering that successfully disposing of goods and property in accordance with a policy will depend on having staff who are well trained, knowledgeable and motivated to comply.

Disposal and direct negotiations

Direct negotiations can carry certain corruption risks in the disposal of goods and property. The ability to avoid a competetive process is often associated with corrupt conduct. More detail is available in the ICAC publication, Direct negotiations: Guidelines for managing risks (August 2018).

The ICAC has investigated and found corrupt conduct in direct negotiations on the disposal of goods and property. Recent examples where corrupt conduct occurred in direct negotiations can be found in the following reports:
• Investigation into the conduct of John Cassidy, then chancellor of the University of New England in relation to the sale of the Tattersalls Hotel (October 2014) – in relation to land and property
• Investigation into the conduct of officers of the NSW Rural Fire Services and others (December 2015) - in relation to goods.

In-house tenders

Agencies can choose to dispose of goods by in-house tender, meaning the items are sold to employees within the agency. In-house tenders can be cost-effective for goods whose value is low but the costs of externally advertising and selling them would be excessive. In-house tenders may be considered, for example, in the sale of individual redundant, office equipment of a modest size or courtesy gifts of a token amount that the agency has received.

Corruption risks still exist with in-house tenders, however, and must be managed appropriately. An obvious example is staff involved in the disposal process manipulating bids to favour themselves or other staff. The ICAC recommends that a procedure for guiding in-house tenders may be appropriate, especially where it is reasonably expected to be a frequent activity.

Updated December 2018

[1]See definition of procurement in s 162 of the Public Works and Procurement Act 1912.

[2] For an example of process mapping see the ICAC report, Controlling corruption opportunities in the provision of maintenance services, February 2017, pp. 23–24.